Changes to natural gas and electricity regulation adopted

On 27 June 2017 the Finnish Parliament adopted the new Natural Gas Market Act and certain other related acts. The overall purpose of the legislative package is to open the Finnish natural gas markets for competition in connection with the commissioning of the Balticconnector gas pipeline between Finland and Estonia. At the same time, new legislation limiting the price increases of fees for electricity and natural gas distribution and transmission services was adopted.

Background and key aims

The natural gas market has not been opened up to competition as the isolated market exception contained in the EU Directive concerning common rules for the internal market in natural gas (2009/73/EC) has been applied in Finland. The key aim of the package, i.e. to increase competition in the supply of natural gas originating from renewable sources, originate from the Finnish Government's report on national energy and climate strategy to 2030. Another aim is to improve the competitiveness of natural gas through lesser regulation by abolishing for the most part the specific regulation of the pricing of natural gas.

The aim is also to create the conditions for Finland to participate in the EU internal market for natural gas and to create a regional market in Finland and the Baltics. The political decision to participate in the regional gas market covering Finland and the Baltics will be made at later stage when the market model and preconditions are known.

The legislation also aims to prevent unreasonable increases of fees for electricity and natural gas distribution and transmission services.

Key content

The key content of new legislation includes:

Opening the wholesale and retail gas markets for competition starting from the beginning of 2020;

Separation (unbundling) of the natural gas transmission system from the production and sale of natural gas by 2020;

Rules for regulated third party access to and regulation of LNG facilities;

Limitation to unreasonable increases of the transmission and distribution fees for electricity and gas.

Opening the wholesale and retail natural gas markets to competition

The wholesale and retail markets for natural gas will be opened for competition starting from the beginning of 2020. Gas networks will be opened for competing suppliers and the gas users will have an opportunity for obtain gas from various suppliers. Pricing regulation in the wholesale of natural gas is removed and the obligation to supply gas at the wholesale level is limited to wholesalers having significant market power and covers only wholesales of natural gas imported from Russia to retailers. Regulation concerning the retail sale of natural gas is decreased to cover small customers using gas for household purposes.

The liberalisation of the gas market in Finland may open up new business models and possibilities for various market players. Such opportunities may be increased should Finland join the wider regional market in the future.

Unbundling of the natural gas transmission network from the supply of natural gas by 2020

The unbundling will be achieved by the so-called effective unbundling model in the EU Directive 2009/73/EC. According to the preparatory materials, this will best ensure that the transmission system operator acts as a neutral developer of marketplaces towards new entrants and the overall benefits will be taken as the starting point for development of the transmission system and the marketplace.

In practice this will mean a solution similar to the electricity industry where the transmission system operator cannot be owned by parties active in production or supply. The new transmission system operator needs to be certified in accordance with the procedures laid out in the new special Act, EU Directive 2009/73/EC and EU Regulation 715/2009.

The transmission system is seen as a part of the critical energy infrastructure the Finnish State will have control and majority of ownership in. The Economic Committee of the Parliament saw it important to start preparations to combine the operations of the unbundled transmission system operator and Baltic Connector Ltd., the state-owned undertaking which will operate the Balticconnector pipeline between Finland and Estonia.

Third party access to and regulation of LNG facilities

Due to the requirements of the European Commission, the new Natural Gas Market Act will as a main rule cover all LNG facilities, including those that are not connected to the main gas grid. Exceptions to this include facilities serving the end-user's own needs only that are not used to importing LNG. Third party access of suppliers and users to the LNG terminals will cover the entire service chain. Tariffs and terms will be confirmed and supervised by the Energy Authority.

Limitation to unreasonable increases of the transmission and distribution fees of electricity and gas

A new provision will be introduced to both the Electricity Market Act and the Natural Gas Market Act that contains an annual ceiling of 15 % for increases both distribution and transmission service fees. The increase will be compared to the preceding 12 months period on a sliding scale so that increases occurring in the following year will be taken into account. The increases will be considered on the basis of client groups. A secondary assessment method was introduced to electricity service fee increases at the transmission and high voltage distribution systems during the Parliamentary process.

The Energy Authority continues to supervise the overall reasonableness of the distribution and transmission fees through its regulatory methodology. However, the provision does not limit the distribution of e.g. dividends and other group contributions to the owners of the system operator, as was proposed earlier by the Energy Authority.

Next steps

The new Natural Gas Market Act shall enter into force on 1 January 2018, but the new provisions concerning unbundling of the transmission system and opening of the natural gas market will not enter into force until 1 January 2020.